Quote Ref: WS2

Buy to Let- Cause of the Housing Crisis?

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Everybody seems to be talking about the Buy-to-Let market.

George Osbourne has upped the Buy to Let and Second home tax, people can’t afford a mortgage until they’re, on average, 30 and those who can afford second properties seem to be getting the blame.

With so many measures being made to combat the growth of buy to let landlords, what will be the outcome?

Let’s break it down. 

Problem

As any first time buyer in 2015 will know, getting a mortgage is daunting and seems impossible.

With house prices soaring, the average 20% deposit on properties is more than a years’ worth of wages for most first time buyers today. During generation rent, the young can only afford small monthly repayments and those renting the property are, in effect, keeping it off the market.

To some, this doesn’t seem fair. The UK Housing Crisis means that there aren’t enough affordable homes to buy in the UK and some think that those who can afford them, are increasing the problem by putting them up for rent.

The government has created multiple schemes to help bring down the cost of mortgage deposits so that more first time buyers can get their foot on the housing ladder, but as George Osbourne increases tax on second properties, landlords are feeling victimised.

Some landlords believe that these small efforts from the government will not help the problem at all and may be a political stunt. They say the chancellor is looking for someone to blame and a 3% increase in tax will have a minimal effect in seriousness of the housing crisis. You can read exactly what the 3% increase will mean for you here.

Prejudice

With the government taking a series of measures to stop small investors from buying additional housing for the purpose of renting out, others are beginning to blame landlords for the problem that the UK currently face.

Some have developed the views that landlords are selfish and greedy for investing in an area that potentially stops first time buyers from ever owning their own home.

In some cases landlords have been referred to landlords as ‘parasites’, ‘greedy vultures’ and ‘exploiters’.  

Newspaper columnists, activists and politicians regularly brand them as unhelpfully leeching off those who are unable to get a foot on the housing ladder.

This is mainly because there was a time when people would only rent until they had saved enough for their mortgage, however, now landlords are being blamed for high rent prices that prevent people from being able to save enough for a mortgage.

Landlords are saying that they have worked hard for their money to save for a pension and that they are an easy target as the government point the finger. Critics have fired back with comments that the average British landlord is 56, owns eight rental properties and has already been a landlord for 14 years- quite a hefty pension pot.

The truth is, Landlords have thrived because the financial sector have been stacking the odds in their favour which has led the property market becoming difficult for everyone else. For example, interest only mortgages aren’t offered to first time buyers, so the higher payments that first time buyers would have to meet make them a less attractive mortgage candidate.

The sad thing is, it sees youths, young couples and first time buyers, renting for the foreseeable future. They lack the financial stability that a property brings, fill the pockets of landlords with money that could be being invested into their own property and live with the thought of never owning their own home.

This can have a massive effect on the younger generation and leave them feeling forgotten in such difficult times.

Product

Landlords with a smaller investment are being judged and penalised for keeping hold of a small investment.

Those who have multiple properties can benefit from corporatisation which will allow them to avoid the tax increase but those with only one extra property would be the ones who suffer.

Here’s a scenario for you.

John owns his own house and Jane owns her own flat. When Jane moves in with John, they decide to rent out Jane’s old flat for a little extra income.

This is perfectly reasonable in most people’s eyes. But they will be susceptible to the tax increase.

Here’s a second scenario.

Bill owns ten properties. He has recently heard about the buy to let tax increase. He decides to turn his properties into a small business. This is no longer classed as a buy to let property, but a business and so Bill will be exempt from the 3% increase.

Effectively, only the smaller scale investors will suffer as a result unless they increase their rental costs.

Which means that tenants are going to suffer too. As rent prices increase, so does the fact that tenants will have less and less money to save for a deposit.

So, while those who want to see large scale landlord’s fail are happy about the tax increase, they are not necessarily the ones who will be effected by this.

Is the answer creating more properties? Or should there be a limit on the amount of properties someone can own?

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